Monday, 13 October 2008

During the churning of the ocean of milk, a great poison known as halahala was produced, which Lord Vayu, the god of wind, rubbed in his hands to reduce its potency. Then a small portion was given to Lord Shiva, thus knocking him unconscious and turning his throat blue. The rest was collected in a golden vessel and digested by Vayu. A little portion of poison that wasn't swallowed by Shiva became the body of Kali. Later, when the asura Rahu was decapitated by Vishnu's Mohini avatar, the demon’s allies attacked her and all except Kali were killed. Having the power to possess the bodies of immortal and mortal beings, he entered the hearts of man and escaped death. Thus Kali became “invisible, unimaginable, and present in all.”

CAPITALISM TAKES A LOT OF KILLING - A time when the gods changed,Wall Street's wild tribe displayed a fearful arrogance that knew no bounds.

As I frantically leaf through the daily dispatches from the killing fields of Wall Street and count the mounting casualties of American capitalism's formerly invincible totems, one haunting thought repeats itself.

Referring to a similarly tumultuous period in Hawaiian history, the iconic American novelist James Michener described the series of cataclysmic events on the islands as "a time when the gods changed."

No lesser concept can encompass the massacre of Wall Street's bulls and the defenestration of the men and women who considered themselves masters of the universe and displaying a fearful arrogance that knew no bounds. By any standard, the current upheaval in American society - economic, political and psychic - is unparalleled in recent times. Unlike the Great Depression of the 1930s, legions of regulators were already in place this time, charged with preventing exactly what happened.

Investors will not feel the same, or be the same, at the end of this mother of all stock market corrections. The fraudulent overvaluation of questionable assets was less an individual crime than the common assumption of Wall Street's most successful players. During 10 dark September days, $5-trillion in assets of the most prestigious financial institutions of the United States turned into ashes. Canada, with its staid but highly fallible banks, will be shaken, too.

The invisible hand that once governed investment decisions turned out to be attached to a malevolent magician's sleeve, whose trick was to make money disappear.

We are witnessing the dismantling of the viscera of American capitalism. Investors can no longer accept capitalism's disciples on trust. First came the shock, with many of the continent's bedrock brokerage houses and merchant banks proving to be as destructible as the soap bubbles kids blow to ward off boredom.

Then came the anger: Who were these riverboat gamblers who had put at risk not just their own reputations but those of their firms, the credibility of the stock exchanges and their clients' pocketbooks, and the viability of the system itself? And why did the countervailing forces of reform and corporate governance go along with the carnival that turned Wall Street into an abattoir?

The only member of that wild tribe I knew even slightly was one of its wildest: Michael Milken, who reigned as Wall Street's junk-bond king in the 1980s, regularly earning $700-million in annual commissions. "Morality and legality became mere conventions to him, accepted modes of behaviour for the less creative, the less aggressive, the less visionary," wrote Connie Bruck in The Predators' Ball. "Milken's firm was the brass-knuckles, threatening, market-manipulating Cosa Nostra of the securities world." (Mr. Milken was a perfectionist, even when it came to hiding his baldness. He bought 30 wigs, each with slightly longer hair to simulate natural growth and wore them daily until the end of each month, when he pretended to get a haircut.)

He eventually went to jail and was fined $200-million (and double that in settlement payments to shareholders), but his legacy abides. He became a role model for future profiteers and the Wall Street operators who, like Gordon Gekko, the buccaneer in Oliver Stone's epic film Wall Street, boasted about having had an ethical bypass at birth.

While Mr. Milken eventually paid the price, most of his current disciples, squeezing credit ratings beyond their breaking point, ran their firms into bankruptcy while rewarding themselves with obscene exit bonuses. Richard Fuld, the former CEO of Lehman Brothers, which set off the avalanche, left his desk after getting 2007 compensation of $22-million, not including what he had gathered by selling Lehman stock before it became wallpaper.

Mr. Milken's junk-bond caper was followed by the savings-and-loan swindles, the high-tech/Internet bubble and now the subprime crisis, which is the most toxic yet. After all the ditzy, pay-us-back-when-you-feel-like-it mortgages floated by American banks had diluted real values, there wasn't much credit left, and most banks have been unable or unwilling to assist their victims. Washington's $700-billion bailout will help in the same way that a Band-Aid momentarily calms a fresh wound.

CANADA WILL BE SHAKEN

Slowly, much too slowly, the realization has dawned that the belief system that allowed Canadians to industrialize the brooding, silent and inaccessible land of our fathers and grandfathers will need to be reinvented. What we need is new gods, freshly minted mentors motivated by values as the source of their experience - instead of experience as the source of their values. Political leaders need not apply. Even Stephen Harper, masquerading as a cool dude in a Zellers sweater, only manages to appear overwhelmed.

These past two weeks have proved that capitalism, in Canada as elsewhere, takes a lot of killing. Perhaps we needed this catharsis as part of the debacle of a status quo that was no longer serving us well, if it ever did. The gap between illusion and reality had grown too wide, bringing into sharp focus the nostrum of the University of Toronto political scientist Abraham Rotstein, "Much will have to change in Canada if the country is to stay the same."

The specific effects on Canadian capitalism have yet to be felt. Bay Street has worn out its optimistic mandate and can no longer pretend that its financial sanctions mean anything except a universal warning, "Run for the Hills, Here Come the Money Guys." There remain few sanctuaries. Self-reliance lives.

In the cozy past, we set our faith in the individual wisdom and collective thrift of Canada's bankers, mainly one-time tellers, Scottish in their deportment and personal parsimony - even if they were born in Moncton and didn't know whether to play the haggis or carve the bagpipes. They prided themselves on their prudence and integrity, regularly reinforced at meetings of their Presbyterian synods. In exchange for having been granted an oligopoly over the country's banking system, they prevented all but a few minor runs on minor banks, and gradually moved Canadians' careful money from their mattresses into their vaults. They genuinely believed they were exercising not power, but also responsibility. Only two misdeeds were serious enough to warrant their dismissal in those far-off days: embezzlement or encouraging a tellers' union.

If they didn't quite qualify as the high priests of capitalism, they certainly were its front-line guardians. In their communities, they occupied a place between familiarity and contempt, in the same block as clerics. "We're like the priest in a confessional," confessed John Coleman, a former deputy chairman of the Royal Bank. "We have to keep everything we hear in confidence, even when we're on both sides of a transaction."

More recently, our bankers have been going bonkers in their bunkers, worrying more about seizing defunct financial institutions in the U.S. at Bay-Day prices than about tending their gardens. The system remains sound, if wobbly, but it is too early to start bulking up your mattresses again. Yet these are the same addle-brained professionals who, not that long ago, bestowed unjustified - and even undocumented - credits on the Reichmanns, Robert Campeau, Bramalea, Confederation Life, Brazil and most spectacularly, Jack Gallagher, the chief honcho of Calgary's Dome empire.

Convinced there was a Saudi-size reservoir of oil under the unforgiving ice floes churning off Tuktoyaktuk, in the Beaufort Sea, Mr. Gallagher didn't find it, but never stopped searching, using government incentives and other people's money, without ever paying dividends or taxes. At one point he ceased servicing the interest on the $6.5-billion he had borrowed from Canadian banks and simply played for time. No bank ever dared refuse him, because his combination of charm and muscle proved irresistible.

I was as mesmerized by the man as everybody else, except for a brief exchange we had when he was at the height of his fame and fortune. Not knowing how to end our interview politely, I asked him what he planned to do, once he had tamed the Beaufort.

"Why, I'm gonna irrigate the Sinai desert," he confided in the stage whisper of a mad scientist.

I started inching toward the door but he wouldn't be stopped. "Ya see, much of the sand is really silt," he explained, looking off in the middle distance. "So the eastern third of the peninsula running from El Arish to Aqaba would be set aside for nuclear-powered desalinators, which would turn the sea water into irrigation systems to transform the desert into a green belt and a new home for the Palestinians."

At the time, I mumbled, "Great idea, Jack," and skedaddled out.

In recent days, Mr. Gallagher would have felt right at home among the gamblers on Wall Street.

The best advice any Bay Street player ever gave me I received from the late Andy Sarlos, a Hungarian-born genius who felt impending market variations in his bones. When I lost some money and delivered a passionate rant comparing stock trading to playing the long odds at a gambling casino, he took me aside and read me the riot act. "Do not," he warned, "ever mistake stock markets for casinos." Adding, with an explanatory Hungarian shrug, "Casinos have rules."